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1、CHAPTER10DECENTRALIZATION:RESPONSIBILITYACCOUNTING,PERFORMANCEEVALUATION,ANDTRANSFERPRICINGQUESTIONSFORWRITINGANDDISCUSSION2261.Decentralizationisthedelegationofdecision-makingauthoritytolowerlevels.Incentralizeddecisionmaking,decisionsaremadeattheverytoplevel,andlower-levelm
2、anagersareresponsibleforimplementingthesedecisions.Fordecentralizeddecisionmaking,decisionsaremadeandimplementedbylower-levelmanagers.2.Reasonsfordecentralizationincludethefollowing:accesstolocalinformation,moretimelyresponse,focusingofcentralmanagement,exposureofsegmentstoma
3、rketforces,enhancedcompetition,training,andmotivation.3.Knowledgeoflocalconditionsmaybecriticalfordecisions;localmanagersareawareoftheseconditions,whereashigher-levelmanagersmaynotbe.Thiscanleadtomoreinformativedecisionmaking.4.Margin=Netincome/Sales,andTurnover=Sales/Average
4、operatingassets.BybreakingROIintomarginandturnover,moreinsightintowhyROImaychangefromoneperiodtothenextispossible.5.ThreeadvantagesofROIinclude:(1)ROIencouragesmanagerstopayattentiontotherelationshipsamongsales,expenses,andinvestment.(2)ROIencouragescostefficiency.(3)ROIdisco
5、uragesexcessiveinvestmentinoperatingassets.Increasedprofitabilitycanbeachieved(allotherthingsbeingequal)byincreasingrevenues,decreasingexpenses,orloweringinvestment.6.TwodisadvantagesofROIare:(1)ROImaydiscouragemanagersfrominvestinginproj-ectsthatwouldincreasetheprofitability
6、ofthefirmbutdecreasethedivision’sROI.(2)Italsomayencouragemanagerstofocusonshort-runprofitabilityandtotakeactionsthatmayharmlong-runprofitability.7.Residualincomeisthedifferencebetweennetincomeandtheminimumdollarreturnrequiredonaninvestment.Residualincomeencouragesinvestmenti
7、nallprojectsthatearnatleasttheminimumrateofreturn.8.EVAiseconomicvalueadded.Itisthedifferencebetweenafter-taxincomeandthecostofthecapitalemployed.EVAisanabsolutedollaramount,notapercentagerateofreturnlikeROI.EVAdiffersfromresidualincomeinEVA’suseofafter-taxincomeandthetruecos
8、tofcapital(ratherthanahurdlerate).9.Astockoptionistherighttopurchase
